2025 Ruling 2024-1022431R3 - Loss Consolidation Arrangement

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: (1) Whether each of the Losscos will be entitled to apply the Non-Capital Losses that it incurred against the interest income that it will earn on the Profitco Notes as part of the Loss Consolidation; (2) Whether Profitco will be entitlled to deduct the aggregate interest expenditures that will be payable on the Profitco Notes, and the Lossco PS Dividends that it will receive on the Lossco PS.

Position: (1) Yes; (2) Yes.

Reasons: The Loss Consolidations transactions will be legally effective, and will not contemplate dollar amounts and time frames that are blatantly artificial. In addition, Profitco will comply with the requirements found in paragraph 20(1)(c) and subsection 112(1), and the CRA views applicable to loss consolidation arrangements.

XXXXXXXXXX 2024-102243

XXXXXXXXXX, 2025

Dear XXXXXXXXXX

Re : Advance Income Tax Rulings Request – Loss Consolidation

Profitco: XXXXXXXXXX
Lossco1: XXXXXXXXXX
Lossco2: XXXXXXXXXX
Lossco3: XXXXXXXXXX
Lossco4: XXXXXXXXXX
Lossco5: XXXXXXXXXX

We are writing in response of your letter dated XXXXXXXXXX, in which you requested an Advance Income Tax Ruling (“Ruling Request”) on behalf of the abovementioned taxpayers (“Taxpayers”). We also considered the information provided to us in subsequent email correspondence.

We understand that, to the best of your knowledge and that of the Taxpayers, none of the Proposed Transactions or issues involved in the Ruling Request are the same as or substantially similar to transactions or issues that are:

(i) in a previously filed tax return of the Taxpayers or a person related to the Taxpayers that is:

(a) being considered by the CRA in connection with such return,

(b) under objection by the Taxpayers or a person related to the Taxpayers, or

(c) the subject of a current or completed court process involving the Taxpayers or a person related to the Taxpayers; or

(ii) the subject of a ruling request previously considered by the Income Tax Rulings Directorate.

The Taxpayers have also confirmed that the Proposed Transactions described herein will not result in the Taxpayers or any person related to the Taxpayers being unable to pay any of their existing liabilities.

This letter is based solely on the Facts and Proposed Transactions described below. The documentation submitted with the Ruling Request does not form part of the Facts and Proposed Transactions, and any references thereto are provided solely for the convenience of the reader.

Unless otherwise stated: (a) all references to a statute are to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended (“Act”), or, where appropriate, to the Income Tax Regulations, C.R.C., c.945, as amended, (“Regulations”), (b) all references to monetary amounts are in Canadian dollars and (c) the singular should be read as plural and vice versa where the circumstances so require.

Definitions:

XXXXXXXXXX;

“ACB” means “adjusted cost base” as that term is defined in section 54;

“Affiliated Persons” has the meaning assigned by section 251.1 without reference to the definition of the term “controlled” in subsection 251.1(3);

“Agreeing Province” means a province that has entered into an agreement with the Government of Canada under which the Government of Canada will collect taxes payable under the income tax statute of that province and will make payments to that province in respect of the taxes so collected;

“Arm’s Length” has the meaning assigned by subsection 251(1);

XXXXXXXXXX;

“Daylight Loan” means the interest-free loan approximately equal to $XXXXXXXXXX that Profitco will make to Parentco as further described in Paragraph 44;

“Dividend Rental Arrangement” has the meaning assigned by subsection 248(1);

XXXXXXXXXX;

“Excepted Dividend” has the meaning assigned by section 187.1;

“Excluded Dividend” has the meaning assigned by subsection 191(1);

“Excluded Interest” has the meaning assigned by subsection 18.2(1);

“Fair Market Value” means the highest price available in an open and unrestricted market between informed and prudent parties dealing at Arm’s Length and under no compulsion to act, that is expressed in terms of cash;

“Financial Institution Group Entity” has the meaning assigned by subsection 18.2(1);

“First IBL1” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco1 will first make to Profitco as part of the Loss Consolidation, which will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 52;

“First IBL3” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco3 will first make to Profitco as part of the Loss Consolidation, which will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 66;

“First Lossco1 PS” refers to the preferred shares that Lossco1 will issue to Profitco in consideration for Profitco’s transfer of the First IBL1 proceeds to Lossco1 as further described in Paragraph 53;

“First Lossco3 PS” refers to the preferred shares that Lossco3 will issue to Profitco in consideration for Profitco’s transfer of the First IBL3 proceeds to Lossco3 as further described in Paragraph 67;

“Fourth IBL1” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco1 will make to Profitco immediately after the Third IBL1 as part of the Loss Consolidation. The Fourth IBL1 will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 58;

“Fourth Lossco1 PS” refers to the preferred shares that Lossco1 will issue to Profitco in consideration for Profitco’s transfer of the Fourth IBL1 proceeds to Lossco1 as further described in Paragraph 59;

“Guarantee Agreement” has the meaning assigned by subsection 112(2.2);

“IBL1” collectively refers to the First IBL1, Second IBL1, Third IBL1 and Fourth IBL1 the aggregate amount of which is approximately equal to $XXXXXXXXXX;

“IBL2” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco2 will make to Profitco as part of the Loss Consolidation, which will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 62;

“IBL3” collectively refers to the First IBL3 and the Second IBL3 the aggregate amount of which is approximately equal to $XXXXXXXXXX;

“IBL4” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco4 will make to Profitco as part of the Loss Consolidation, which will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 72;

“IBL5” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco5 will make to Profitco as part of the Loss Consolidation, which will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 76;

“IBLs” refers, collectively, to IBL1, IBL2, IBL3, IBL4 and IBL5;

“IFL1” refers to interest-free loan approximately equal to $XXXXXXXXXX that Parentco will make to Lossco1 as part of the Loss Consolidation as further described in Paragraph 51;

“IFL2” refers to the interest-free loan approximately equal to $XXXXXXXXXX that Parentco will make to Lossco2 as part of the Loss Consolidation as further described in Paragraph 61;

“IFL3” refers to the interest-free loan approximately equal to $XXXXXXXXXX that Parentco will make to Lossco3 as part of the Loss Consolidation as further described in Paragraph 65;

“IFL4” refers to the interest-free loan approximately equal to $XXXXXXXXXX that Parentco will make to Lossco4 as part of the Loss Consolidation as further described in Paragraph 71;

“IFL5” refers to the interest-free loan approximately equal to $XXXXXXXXXX that Parentco will make to Lossco5 as part of the Loss Consolidation as further described in Paragraph 75;

“IFLs” refers, collectively, to IFL1, IFL2, IFL3, IFL4 and IFL5;

“Implementation Date” refers to the date when the Loss Consolidation will be implemented by Profitco and the Losscos;

XXXXXXXXXX;

“Lossco PS Dividends” collectively refers to the Lossco1 PS Dividend, Lossco2 PS Dividend, Lossco3 PS Dividend, Lossco4 PS Dividend, Lossco5 PS Dividend and Lossco6 PS Dividend;

“Lossco1” means XXXXXXXXXX, which is the corporation described in Paragraph 8;

“Lossco1 PS” collectively refers to the First Lossco1 PS, Second Lossco1 PS, Third Lossco1 PS and Fourth Lossco1 PS;

“Lossco1 PS Dividend” refers to the Taxable Dividend that Lossco1 will pay to Profitco, each year before the Wind-Up, on the Lossco1 PS as further described in Paragraph 82;

“Lossco2” means XXXXXXXXXX, which is the corporation described in Paragraph 17;

“Lossco2 PS” refers to the preferred shares that Lossco2 will issue to Profitco in consideration for Profitco’s transfer of the IBL2 proceeds to Lossco2 as further described in Paragraph 63;

“Lossco2 PS Dividend” refers to the Taxable Dividend that Lossco2 will pay to Profitco, each year before the Wind-Up, on the Lossco2 PS as further described in Paragraph 84;

“Lossco3” means XXXXXXXXXX, which is the corporation described in Paragraph 23;

“Lossco3 PS” collectively refers to the First Lossco3 PS and Second Lossco3 PS;

“Lossco3 PS Dividend” refers to the Taxable Dividend that Lossco3 will pay to Profitco, each year before the Wind-Up, on the Lossco3 PS as further described in Paragraph 86;

“Lossco4” means XXXXXXXXXX, which is the corporation described in Paragraph 29;

“Lossco4 PS” refers to the preferred shares that Lossco4 will issue to Profitco in consideration for Profitco’s transfer of the IBL4 proceeds to Lossco4 as further described in Paragraph 73;

“Lossco4 PS Dividend” refers to the Taxable Dividend that Lossco4 will pay to Profitco, each year before the Wind-Up, on the Lossco4 PS as further described in Paragraph 88;

“Lossco5” means XXXXXXXXXX, which is the corporation described in Paragraph 35;

“Lossco5 PS” refers to the preferred shares that Lossco5 will issue to Profitco in consideration for Profitco’s transfer of the IBL5 proceeds to Lossco5 as further described in Paragraph 77;

“Lossco5 PS Dividend” refers to the Taxable Dividend that Lossco5 will pay to Profitco, each year before the Wind-Up, on the Lossco5 PS as further described in Paragraph 90;

“Lossco PS” collectively refers to the Lossco1 PS, Lossco2 PS, Lossco3 PS, Lossco4 PS and Lossco5 PS;

“Loss Consolidation” means the series of transactions that will be implemented to enable Profitco to pay interest on the IBLs, and each of the Losscos to earn interest income on the IBLs before Wind-Up as further described in Paragraphs 43 to 101;

“Lossco Note 1” refers to the non-interest bearing promissory note that Lossco1 will issue to Parentco in consideration for the IFL1 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Lossco Note 2” refers to the non-interest bearing promissory note that Lossco2 will issue to Parentco in consideration for the IFL2 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Lossco Note 3” refers to the non-interest bearing promissory note that Lossco3 will issue to Parentco in consideration for the IFL3 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Lossco Note 4” refers to the non-interest bearing promissory note that Lossco4 will issue to Parentco in consideration for the IFL4 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Lossco Note 5” refers to the non-interest bearing promissory note that Lossco5 will issue to Parentco in consideration for the IFL5 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Lossco Notes” collectively refers to the Lossco Note 1, Lossco Note 2, Lossco Note 3, Lossco Note 4 and Lossco Note 5;

“Lossco PS” refers to the preferred shares that each of the Losscos will issue to Profitco as part of the Loss Consolidation whose features are further described in Paragraph 43;

“Lossco PS Dividends” collectively refers to the Lossco1 PS Dividend, Lossco2 PS Dividend, Lossco3 PS Dividend, Lossco4 PS Dividend and Lossco5 PS Dividend;

“Loss Restriction Event” has the meaning assigned by subsection 251.2(2);

“Losscos” refers, collectively, to Lossco1, Lossco2, Lossco3, Lossco4 and Lossco5;

XXXXXXXXXX;

“Non-capital losses” has the meaning assigned by subsection 111(8);

XXXXXXXXXX;

“Paragraph” means a numbered paragraph in this letter;

“Parentco” means XXXXXXXXXX, which is the corporation described in Paragraph 6;

“Permanent Establishment” has the meaning assigned by subsection 400(2) of the Regulations;

“Principal Amount” has the meaning assigned by subsection 248(1);

“Profitco” means XXXXXXXXXX, which is the corporation described in Paragraph 1;

“Profitco Group” means the corporate group comprised of Profitco, Parentco and Profitco’s related entities;

“Profitco Notes 1” collectively refers to the Profitco Note 1A, Profitco Note 1B, Profitco Note 1C and the Profitco Note 1D the aggregate Principal Amount of which will be approximately equal to $XXXXXXXXXX;

“Profitco Note 1A” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco1 in consideration for the First IBL1 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Note 1B” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco1 in consideration for the Second IBL1 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Note 1C” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco1 in consideration for the Third IBL1 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Note 1D” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco1 in consideration for the Fourth IBL1 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Note 2” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco2 in consideration for the IBL2 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Notes 3” collectively refers to the Profitco Note 3A and Profitco Note 3B the aggregate Principal Amount of which will be approximately equal to $XXXXXXXXXX;

“Profitco Note 3A” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco3 in consideration for the First IBL3 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Note 3B” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco3 in consideration for the Second IBL3 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Note 4” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco4 in consideration for the IBL4 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Note 5” refers to the promissory note bearing interest at a rate approximately equal to XXXXXXXXXX% that Profitco will issue to Lossco5 in consideration for the IBL5 whose Principal Amount will be approximately equal to $XXXXXXXXXX;

“Profitco Notes” collectively refers to the Profitco Notes 1, Profitco Note 2, Profitco Notes 3, Profitco Note 4 and Profitco Note 5;

“Proposed Transactions” refers to the transactions described in Paragraphs 43 to 101;

“Provincial Allocation” refers to the allocation of the Taxable Income earned by Proftco and each of the Losscos in the provinces where they respectively have a Permanent Establishment for the purposes of computing their Taxable Income Earned in the Year in a Province in accordance with the rules found in Part IV of the Income Tax Regulations C.R.C., c. 945 as amended to the date hereof;

“PUC” means “paid-up capital” as that term is defined in subsection 89(1);

XXXXXXXXXX;

“Redemption Note 1” refers to the non-interest bearing promissory note that Lossco1 will issue to Profitco upon Lossco1’s redemption of the Lossco1 PS in full payment of the redemption price for the Lossco1 PS on the Wind-Up as further described in Paragraph 92;

“Redemption Note 2” refers to the non-interest bearing promissory note that Lossco2 will issue to Profitco upon Lossco2’s redemption of the Lossco2 PS in full payment of the redemption price for the Lossco2 PS on the Wind-Up as further described in Paragraph 94;

“Redemption Note 3” refers to the non-interest bearing promissory note that Lossco3 will issue to Profitco upon Lossco3’s redemption of the Lossco3 PS in payment of the redemption price for the Lossco3 PS on the Wind-Up as further described in Paragraph 96;

“Redemption Note 4” refers to the non-interest bearing promissory note that Lossco4 will issue to Profitco upon Lossco4’s redemption of the Lossco4 PS in payment of the redemption price for the Lossco4 PS on the Wind-Up as further described in Paragraph 98;

“Redemption Note 5” refers to the non-interest bearing promissory note that Lossco5 will issue to Profitco upon Lossco5’s redemption of the Lossco5 PS in payment of the redemption price for the Lossco5 PS on the Wind-Up as further described in Paragraph 100;

“Redemption Notes” collectively refers to the Redemption Note 1, Redemption Note 2, Redemption Note 3, Redemption Note 4 and Redemption Note 5;

“Related Persons” has the meaning assigned by subsection 251(2);

“Second IBL1” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco1 will make to Profitco immediately after the First IBL1 as part of the Loss Consolidation. The Second IBL1 will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 54;

“Second IBL3” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco3 will make to Profitco immediately after the First IBL3 as part of the Loss Consolidation. The Second IBL3 will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 68;

“Second Lossco1 PS” refers to the preferred shares that Lossco1 will issue to Profitco in consideration for Profitco’s transfer of the proceeds of the Second IBL1 to Lossco1 as further described in Paragraph 55;

“Second Lossco3 PS” refers to the preferred shares that Lossco3 will issue to Profitco in consideration for Profitco’s transfer of the proceeds of the Second IBL3 to Lossco3 as further described in Paragraph 69;

“Specified Financial Institution” has the meaning assigned by subsection 248(1);

“Subsidiary Wholly-Owned Corporation” has the meaning assigned by subsection 248(1);

“Subsidiary1” means XXXXXXXXXX, which was a Taxable Canadian Corporation and a Subsidiary Wholly-Owned Corporation of Lossco1 before it was wound-up on XXXXXXXXXX as further described in Paragraph 12;

“Taxable Canadian Corporation” has the meaning assigned by subsection 89(1);

“Taxable Dividend” has the meaning assigned by subsection 89(1);

“Taxable Income” has the meaning assigned by subsection 248(1);

“Taxable Income Earned in the Year in a Province” has the meaning assigned by subsection 124(4);

“Taxable Preferred Shares” has the meaning assigned by subsection 248(1);

“Term Preferred Shares” has the meaning assigned by subsection 248(1);

“Third IBL1” refers to the interest-bearing loan approximately equal to $XXXXXXXXXX that Lossco1 will make to Profitco immediately after the Second IBL1 as part of the Loss Consolidation. The Third IBL1 will bear interest at a rate approximately equal to XXXXXXXXXX% per annum as further described in Paragraph 56;

“Third Lossco1 PS” refers to the preferred shares that Lossco1 will issue to Profitco in consideration for Profitco’s transfer of the proceeds of the Third IBL1 to Lossco1 as further described in Paragraph 57;

“Ultimate Shareholder” means XXXXXXXXXX, which is the corporation described in Paragraph 2;

“Unused Third Lossco1 PS Subscription Proceeds” refers to the remaining portion of the Third Lossco1 PS subscription proceeds equal to $XXXXXXXXXX that Lossco1 will retain until the repayment of the IFL1 as further described in Paragraph 60; and

“Wind-Up” refers to the time when the Loss Consolidation will be unwound for each of the Losscos and Profitco.

Facts:

Profitco

1. Profitco is a Taxable Canadian Corporation governed by the XXXXXXXXXX, which carries on a XXXXXXXXXX, and that has a taxation year ending XXXXXXXXXX. Profitco does not qualify as a Financial Institution Group Entity.

2. Profitco is indirectly controlled by the Ultimate Shareholder, which is a publicly traded corporation whose shares are listed on XXXXXXXXXX.

3. During its taxation year ended XXXXXXXXXX, Profitco maintained a Permanent Establishment in XXXXXXXXXX. For that taxation year, Profitco’s Provincial Allocation was as follows: XXXXXXXXXX.

4. The Taxable Income that Profitco earned for its taxation years that ended XXXXXXXXXX was as follows:

		Taxation year-end		Taxable Income
		XXXXXXXXXX			XXXXXXXXXX

In the absence of the Loss Consolidation, Profitco expects to earn Taxable Income approximately equal to $XXXXXXXXXX for its taxation years ending XXXXXXXXXX.

5. Profitco owns all the issued and outstanding shares in the capital stock of Parentco.

Parentco

6. Parentco is a Taxable Canadian Corporation governed by the XXXXXXXXXX, which was incorporated by Profitco on XXXXXXXXXX on the Canadian market. Parentco has a taxation year ending XXXXXXXXXX.

7. Parentco holds all the issued and outstanding shares in the capital stock of Lossco1, Lossco3, Lossco4 and Lossco5.

Losscos

Lossco1

8. Lossco1 is a Taxable Canadian Corporation governed by the XXXXXXXXXX that carries on XXXXXXXXXX. Lossco1 has a taxation year ending on XXXXXXXXXX. Lossco1 does not qualify as a Financial Institution Group Entity.

9. Lossco1 is a Subsidiary Wholly-Owned Corporation of Parentco.

10. The authorized share capital of Lossco1 includes an unlimited number of common shares and preferred shares.

11. During its taxation year ended XXXXXXXXXX, Lossco1 exclusively maintained a Permanent Establishment in XXXXXXXXXX. Therefore, Lossco1’s Provincial Allocation was fully attributed to the province of XXXXXXXXXX for that taxation year. Lossco1 does not expect that its Provincial Allocation will materially change in the coming taxation years.

12. Prior to XXXXXXXXXX, Lossco1 owned all the issued and outstanding shares in the capital stock of Subsidiary1, which carried on XXXXXXXXXX.

13. Subsidiary1 incurred the following Non-Capital Losses in the course of carrying its business:

		Taxation year-end		Taxable Income
		XXXXXXXXXX			XXXXXXXXXX

14. On XXXXXXXXXX, Subsidiary1 was wound-up into Lossco1 such that the Non-Capital Losses that Subsidiary1 incurred prior to the commencement of the wind-up were deemed to be Non-Capital Losses of Lossco1 from carrying Subsidiary1’s business in accordance with subsection 88(1.1).

15. For its taxation year ended XXXXXXXXXX , Lossco1 incurred Non-Capital Losses equal to $XXXXXXXXXX in the course of carrying on its business a portion of which amounting to $XXXXXXXXXX was respectively carried back to its taxation years that ended XXXXXXXXXX. Moreover, Lossco1 incurred Non-Capital Losses amounting to $XXXXXXXXXX in the course of carrying its business in respect of its taxation year that ended XXXXXXXXXX.

16. Without the implementation of the Loss Consolidation, all or a portion of the Non-Capital Losses incurred or deemed to have been incurred by Lossco1 are expected to remain unused.

Lossco2

17. Lossco2 is a Taxable Canadian Corporation governed by the XXXXXXXXXX that carries on XXXXXXXXXX. Lossco2 has a taxation year ending on XXXXXXXXXX. Lossco2 does not qualify as a Financial Institution Group Entity.

18. Lossco2 is a Subsidiary Wholly-Owned Corporation of Lossco1.

19. The authorized share capital of Lossco2 includes an unlimited number of common shares.

20. During its taxation year ended XXXXXXXXXX, Lossco2 exclusively maintained a Permanent Establishment in XXXXXXXXXX. Therefore, Lossco2’s Provincial Allocation was fully attributed to the province of XXXXXXXXXX for that taxation year. Lossco2 does not expect that its Provincial Allocation will materially change in the coming taxation years.

21. Lossco2 incurred the following Non-Capital Losses in the course of carrying on its business:

		Taxation year-end		Taxable Income
		XXXXXXXXXX			XXXXXXXXXX

22. Without the implementation of the Loss Consolidation, all or a portion of the Non-Capital Losses that Lossco2 incurred are expected to remain unused.

Lossco3

23. Lossco3 is a Taxable Canadian Corporation governed by the XXXXXXXXXX that carries on XXXXXXXXXX. Lossco3 has a taxation year ending on XXXXXXXXXX. Lossco3 does not qualify as a Financial Institution Group Entity.

24. Lossco3 is a Subsidiary Wholly-Owned Corporation of Parentco.

25. The authorized share capital of Lossco3 includes an unlimited number of common shares and preferred shares.

26. During its taxation year ended XXXXXXXXXX, Lossco3 exclusively maintained a Permanent Establishment in XXXXXXXXXX. Therefore, Lossco3’s Provincial Allocation was fully attributed to the province of XXXXXXXXXX for that taxation year. Lossco3 does not expect that its Provincial Allocation will materially change in the coming taxation years.

27. Lossco3 incurred the following Non-Capital Losses in the course of carrying on its business:

		Taxation year-end		Taxable Income
		XXXXXXXXXX			XXXXXXXXXX

28. Without the implementation of the Loss Consolidation, all or a portion of the Non-Capital Losses that Lossco3 incurred are expected to remain unused.

Lossco4

29. Lossco4 is a Taxable Canadian Corporation governed by the XXXXXXXXXX that carries on XXXXXXXXXX. Lossco4 has a taxation year ending on XXXXXXXXXX. Lossco4 does not qualify as a Financial Institution Group Entity.

30. Lossco4 is a Subsidiary Wholly-Owned Corporation of Parentco.

31. The authorized share capital of Lossco4 includes an unlimited number of common shares and preferred shares.

32. During its taxation year ended XXXXXXXXXX, Lossco4 exclusively maintained a Permanent Establishment in XXXXXXXXXX. Therefore, Lossco4’s Provincial Allocation was fully attributed to the province of XXXXXXXXXX for that taxation year. Lossco4 does not expect that its Provincial Allocation will materially change in the coming taxation years.

33. Lossco4 incurred the following Non-Capital Losses in the course of carrying on its business:

		Taxation year-end		Taxable Income
		XXXXXXXXXX			XXXXXXXXXX

34. Without the implementation of the Loss Consolidation, all or a portion of the Non-Capital Losses that Lossco4 incurred are expected to remain unused.

Lossco5

35. Lossco5 is a Taxable Canadian Corporation governed by the XXXXXXXXXX that carries on XXXXXXXXXX. Lossco5 has a taxation year ending on XXXXXXXXXX. Lossco5 does not qualify as a Financial Institution Group Entity.

36. Lossco5 is a Subsidiary Wholly-Owned Corporation of Parentco.

37. The authorized share capital of Lossco5 includes an unlimited number of common shares.

38. During its taxation year ended XXXXXXXXXX, Lossco5 exclusively maintained a Permanent Establishment in XXXXXXXXXX. Therefore, Lossco5’s Provincial Allocation was fully attributed to the province of XXXXXXXXXX for that taxation year. Lossco5 does not expect that its Provincial Allocation will materially change in the coming taxation years.

39. Lossco5 incurred the following Non-Capital Losses in the course of carrying on its business:

		Taxation year-end		Taxable Income
		XXXXXXXXXX			XXXXXXXXXX

40. Without the implementation of the Loss Consolidation, all or a portion of the Non-Capital Losses that Lossco5 are expected to remain unused.

41. Because each of Lossco1, Lossco2, Lossco3, Lossco4, Lossco5 is indirectly controlled by Profitco, Profitco and the Losscos will be Affiliated Persons throughout the Proposed Transactions.

Proposed transactions:

42. The transactions described in Paragraphs 43 to 101 will occur in the order and within the time limitations specified below.

Implementation of the Loss Consolidation

Amendment of the articles of incorporation of the Losscos

43. The articles of incorporation of each of the Losscos will be amended to create a class of preferred shares having the following features:

(a) non-voting;

(b) non-participating;

(c) redeemable at the option of the issuer and retractable at the option of the holder, subject to the applicable law, at any time for an amount equal to the cash amount for which they were issued (“Redemption Price”). The payment of the Redemption Price may be satisfied, at the issuer’s option, either by:

(i) the payment of cash, or

(ii) the delivery of property having a Fair Market Value at the time of their redemption/retraction equal to the Redemption Price

together with an amount of cash equal to all declared and unpaid dividends, and any accrued dividends which have not been declared and paid up to, but excluding, the date fixed for such redemption or retraction, and

(d) entitle their holder to a cumulative dividend, payable annually, calculated daily and accruing by reference to the Redemption Price of the applicable preferred shares at a fixed rate per annum equivalent to the rate per annum applicable to the IBLs plus approximately XXXXXXXXXX% (“Dividend Rate”). The Dividend Rate will be specifically determined when the Proposed Transactions are implemented.

Daylight Loan

44. Profitco will use its XXXXXXXXXX to fund the Principal Amount of the Daylight Loan, which will be interest-free and payable on demand at Profitco’s option.

IFLs, IBLs and Preferred Shares

45. Profitco and the Losscos will enter into the following transactions to consolidate Taxable Income within the Profitco Group by causing each of the Losscos to earn interest income on the Profitco Notes, and having Profitco to incur an interest expense in respect of the Profitco Notes, which will be deducted in computing its Taxable Income for the taxation years that will end prior to earliest of the date of the Wind-Up or the time when all the Non-Capital Losses that each of the Losscos will have incurred at the Implementation Date have been used.

46. Parentco will use all or a portion of the Daylight Loan to make an IFL to each of the Losscos. The Losscos will issue the Lossco Notes to Parentco in consideration for the IFLs that will be made by Parentco to the Losscos. The Principal Amount of the Lossco Notes will be payable on demand at Parentco’s option.

47. The Losscos will use the IFL proceeds to make the IBLs to Profitco. Profitco will issue the Profitco Notes to the Losscos in consideration for the IBLs that will be made by the Losscos. The IBLs will bear interest at an Arm’s Length rate approximately equal to XXXXXXXXXX% per annum, which will reflect the conditions of the market at the time of its issuance, and will be payable on demand at Lossco’s option.

The terms of the IBLs will provide that:

(a) The recourse of the Losscos with respect to the IBLs will limited to the Lossco PS that Profitco will respectively hold in the capital stock of the Losscos (together with all proceeds, fruits and revenues from such shares), and not to any other assets of Profitco. As a security for the indebtedness evidenced by the Profitco Notes, Profitco will grant to each of the Losscos a security interest in the Lossco PS that will be issued by the Losscos.

(b) The payment of the Principal Amount of the IBLs may be satisfied, at the option of the Profitco, through:

(i) Profitco’s payment of cash to the Losscos;

(ii) Profitco’s transfer of property to the Losscos having an aggregate Fair Market Value equal to the Principal Amount of the IBLs at the time of their repayment; or

(iii) Profitco’s set-off of the Profitco Notes that will be issued to the Losscos in consideration for the IBLs against a promissory note having a Principal Amount and FMV equal to the Principal Amount and FMV of the Profitco Notes at the time of their repayment.

48. Profitco will use the IBL proceeds to subscribe for the Lossco PS. The Redemption Price of each of the Lossco PS will be equal to the Principal Amount and FMV of the Profitco Notes that will be issued to each of the Losscos in consideration for the IBLs that will be made to Profitco. The amount of Lossco PS Dividends that will be paid by each of the Losscos, and received by Profitco on the Lossco PS will enable Profitco to earn a profit on such Lossco PS after deducting the interest paid or payable on the Profitco Notes.

49. Each of the Losscos will use the Lossco PS subscription proceeds to repay the IFL that Parentco will have made to each of the Losscos.

50. Each of the loss consolidation arrangements will be successively implemented by the Losscos in the order stated in the Paragraphs of this letter.

IFL1, IBL1 and Lossco1 PS (Lossco1 LCA)

51. Parentco will use the Daylight Loan proceeds to make the IFL1 to Lossco1 in consideration for the Lossco Note 1.

52. Lossco1 will use the IFL1 proceeds to make the First IBL1 to Profitco whose terms are further described in Paragraph 47.

53. Profitco will use the First IBL1 proceeds to subscribe for the First Lossco1 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the First Lossco1 PS will be equal to the amount paid by Profitco, and received by Lossco1 to subscribe for the First Lossco1 PS.

54. Lossco1 will use the First Lossco1 PS subscription proceeds to make the Second IBL1 to Profitco whose terms are further described in Paragraph 47.

55. Profitco will use the Second IBL1 proceeds to subscribe for the Second Lossco1 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the Second Lossco1 PS will be equal to the amount paid by Profitco, and received by Lossco1 to subscribe for the Second Lossco1 PS.

56. Lossco1 will use the Second Lossco1 PS subscription proceeds to make the Third IBL1 to Profitco whose terms are further described in Paragraph 47.

57. Profitco will use the Third IBL1 proceeds to subscribe for the Third Lossco1 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the Third Lossco1 PS will be equal to the amount paid by Profitco, and received by Lossco1 to subscribe for the Third Lossco1 PS.

58. Lossco1 will use a portion of the Third Lossco1 PS subscription proceeds to make the Fourth IBL1 to Profitco whose terms are further described in Paragraph 47. Lossco1 will keep the Unused Third Lossco1 PS Subscription Proceeds until the repayment of the IFL1.

59. Profitco will use the Fourth IBL1 proceeds to subscribe for the Fourth Lossco1 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the Fourth Lossco1 PS will be equal to the amount paid by Profitco, and received by Lossco1 to subscribe for the Fourth Lossco1 PS.

60. Lossco1 will use the subscription proceeds from the Fourth Lossco1 PS and the Unused Third Lossco1 PS Subscription Proceeds to repay the IFL1 to Parentco.

IFL2, IBL2 and Lossco2 PS (Lossco2 LCA)

61. Immediately after the Lossco1 LCA, Parentco will use a portion of the Daylight Loan proceeds to make the IFL2 to Lossco2 in consideration for the Lossco Note 2.

62. Lossco2 will use the IFL2 proceeds to make the IBL2 to Profitco in consideration for the Profitco Note 2. The terms of the IBL2 are further described in Paragraph 47.

63. Profitco will use the IBL2 proceeds to subscribe for the Lossco2 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the Lossco2 PS will be equal to the amount paid by Profitco, and received by Lossco2 to subscribe for the Lossco2 PS.

64. Lossco2 will use the Lossco2 PS subscription proceeds to repay the IFL2 to Parentco.

IFL3, IBL3 and Lossco3 PS (Lossco3 LCA)

65. Immediately after the Lossco2 LCA, Parentco will use the Daylight Loan proceeds to make the IFL3 to Lossco3 in consideration for the Lossco Note 3.

66. Lossco3 will use the IFL3 proceeds to make the First IBL3 to Profitco whose terms are further described in Paragraph 47.

67. Profitco will use the First IBL3 proceeds to subscribe for the First Lossco3 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the First Lossco3 PS will be equal to the amount paid by Profitco, and received by Lossco3 to subscribe for the First Lossco3 PS.

68. Lossco3 will use the First Lossco3 PS subscription proceeds to make the Second IBL3 to Profitco whose terms are further described in Paragraph 47.

69. Profitco will use the Second IBL3 proceeds to subscribe for the Second Lossco3 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the Second Lossco3 PS will be equal to the amount paid by Profitco, and received by Lossco3 to subscribe for the Second Lossco3 PS.

70. Lossco3 will use the Second Lossco3 PS subscription proceeds to repay the IFL3 to Parentco.

IFL4, IBL4 and Lossco4 PS (Lossco4 LCA)

71. Immediately after the Lossco3 LCA, Parentco will use a portion of the Daylight Loan proceeds to make the IFL4 to Lossco4 in consideration for the Lossco Note 4.

72. Lossco4 will use the IFL4 proceeds to make the IBL4 to Profitco in consideration for the Profitco Note 4. The terms of the IBL4 are further described in Paragraph 47.

73. Profitco will use the IBL4 proceeds to subscribe for the Lossco4 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the Lossco4 PS will be equal to the amount paid by Profitco, and received by Lossco4 to subscribe for the Lossco4 PS.

74. Lossco4 will use the Lossco4 PS subscription proceeds to repay the IFL4 to Parentco.

IFL5, IBL5 and Lossco5 PS (Lossco5 LCA)

75. Immediately after the Lossco4 LCA, Parentco will use a portion of the Daylight Loan proceeds to make the IFL5 to Lossco5 in consideration for the Lossco Note 5.

76. Lossco5 will use the IFL5 proceeds to make the IBL5 to Profitco in consideration for the Profitco Note 5. The terms of the IBL5 are further described in Paragraph 47.

77. Profitco will use the IBL5 proceeds to subscribe for the Lossco5 PS whose terms are further described in Paragraph 43. The Redemption Price, retractation amount and PUC of the Lossco5 PS will be equal to the amount paid by Profitco, and received by Lossco5 to subscribe for the Lossco5 PS.

78. Lossco5 will use the Lossco5 PS subscription proceeds to repay the IFL5 to Parentco.

Repayment of the Daylight Loan

79. Further to the repayment of IFLs as described in Paragraphs 60, 64, 70, 74 and 78, Parentco will fully repay the Daylight Loan.

Maintenance of the Loss Consolidation

80. When jointly determined by Profitco and each of the Losscos and before the Wind-Up, the following transactions will occur, on the same date, at least once a year, in respect of the Lossco PS that will be held by Profitco:

(a) Profitco will pay to each of the Losscos the accrued and unpaid interests that will be payable on the Profitco Notes; and

(b) Immediately after the receipt of the accrued and paid interest on the Profitco Notes and subject to the solvency test that may apply under the applicable corporate legislation, each of the Losscos will pay the accrued and unpaid Lossco PS Dividends to Profitco.

Interest Payable on the Profitco Notes 1 and Lossco1 PS Dividend

81. Profitco will pay and Lossco1 will receive the interest that will be payable on the Profitco Notes 1.

82. Immediately after the receipt of the interest payable on the Profitco Notes 1, Lossco1 will pay the Lossco1 PS Dividend to Profitco.

Interest Payable on the Profitco Note 2 and Lossco2 PS Dividend

83. Profitco will pay and Lossco2 will receive the interest that will be payable on the Profitco Note 2.

84. Immediately after the receipt of the interest payable on the Profitco Note 2, Lossco2 will pay the Lossco2 PS Dividend to Profitco.

Interest Payable on the Profitco Notes 3 and Lossco3 PS Dividend

85. Profitco will pay and Lossco3 will receive the interest that will be payable on the Profitco Notes 3.

86. Immediately after the receipt of the interest payable on the Profitco Notes 3, Lossco3 will pay the Lossco3 PS Dividend to Profitco.

Interest Payable on the Profitco Note 4 and Lossco4 PS Dividend

87. Profitco will pay and Lossco4 will receive the interest that will be payable on the Profitco Note 4.

88. Immediately after the receipt of the interest payable on the Profitco Note 4, Lossco4 will pay the Lossco4 PS Dividend to Profitco.

Interest Payable on the Profitco Note 5 and Lossco5 PS Dividend

89. Profitco will pay and Lossco5 will receive the interest that will be payable on the Profitco Note 5.

90. Immediately after the receipt of the interest payable on the Profitco Note 5, Lossco5 will pay the Lossco5 PS Dividend to Profitco.

Wind-Up of the Loss Consolidation

91. Within XXXXXXXXXX after its implementation, the Loss Consolidation will be wound-up as follows:

(a) Profitco will pay the accrued and unpaid interest, if any, payable on the Profitco Notes to each of the Losscos at the time of the Wind-Up;

(b) Each of the Losscos will declare and pay the accrued and unpaid Lossco PS Dividends, if any, to Profitco at the time of the Wind-Up;

(c) Each of the Losscos will redeem the Lossco PS held by Profitco, and will satisfy the Redemption Price for the Lossco PS by issuing the Redemption Notes to Profitco whose Principal Amount and FMV will be equal to the Redemption Price of the Lossco PS;

(d) Profitco and each of the Losscos will set-off the amounts payable under the Profitco Notes that were issued in consideration for the IBLs that were made by the Losscos, and under the Redemption Notes that were issued to Profitco in payment of the Redemption Price of the Lossco PS in full and absolute payment of each of these obligations;

It is intended that each of the Losscos will proceed to unwind the Loss Consolidation as soon as possible after it is determined that all the Non-Capital Losses that it will respectfully have incurred prior to the Implementation Date have been consolidated within the Profitco Group.

Profitco Note 1, Lossco1 PS and Redemption Note 1

92. Lossco1 will redeem the Lossco1 PS that will be held by Profitco and will satisfy the Redemption Price of the Lossco1 PS by issuing the Redemption Note 1 to Profitco whose Principal Amount and FMV will be equal to the Redemption Price of the Lossco1 PS.

93. The Profitco Notes 1 and the Redemption Note 1 will be legally extinguished by way of set-off.

Profitco Note 2, Lossco2 PS and Redemption Note

94. Lossco2 will redeem the Lossco2 PS that will be held by Profitco and will satisfy the Redemption Price of the Lossco2 PS by issuing the Redemption Note 2 to Profitco whose Principal Amount and FMV will be equal to the Redemption Price of the Lossco2 PS.

95. The Profitco Note 2 and the Redemption Note 2 will be legally extinguished by way of set-off.

Profitco Note 3, Lossco3 PS and Redemption Note 3

96. Lossco3 will redeem the Lossco3 PS that will be held by Profitco and will satisfy the Redemption Price of the Lossco3 PS by issuing the Redemption Note 3 to Profitco whose Principal Amount and FMV will be equal to the Redemption Price of the Lossco3 PS.

97. The Profitco Notes 3 and the Redemption Note 3 will be legally extinguished by way of set-off.

Profitco Note 4, Lossco4 PS and Redemption Note 4

98. Lossco4 will redeem the Lossco4 PS that will be held by Profitco and will satisfy the Redemption Price of the Lossco4 PS by issuing the Redemption Note 4 to Profitco whose Principal Amount and FMV will be equal to the Redemption Price of the Lossco4 PS.

99. The Profitco Note 4 and the Redemption Note 4 will be legally extinguished by way of set-off.

Profitco Note 5, Lossco5 PS and Redemption Note 5

100. Lossco5 will redeem the Lossco5 PS that will be held by Profitco and will satisfy the Redemption Price of the Lossco5 PS by issuing the Redemption Note 5 to Profitco whose Principal Amount and FMV will be equal to the Redemption Price of the Lossco5 PS.

101. The Profitco Note 5 and the Redemption Note 5 will be legally extinguished by way of set-off.

Additional information

Pertaining to the Loss Consolidation

102. The Proposed Transactions will be legally effective.

103. Profitco and each of the Losscos are Related Persons and Affiliated Persons and will continue to be Related Persons and Affiliated Persons throughout the Proposed Transactions. The Loss Consolidation undertaken by each of the Losscos will be unwound in the manner described in Paragraph 91 if any of the Losscos and Profitco cease to be an Affiliated Persons with prior to the Wind-Up.

104. None of the Non-Capital Losses that the Losscos realized prior to the implementation of the Loss Consolidation were incurred prior to the occurrence of a Loss Restriction Event.

105. It is not intended nor expected that the interest income to be earned by each of the Losscos in the course of the Loss Consolidation will materially exceed an amount that each such Losscos could fully shelter with the Non-Capital Losses that they will have realized prior to the implementation of the Loss Consolidation. In addition, Profitco expects to earn Taxable Income in excess of the interest expense that will arise as a result of the Proposed Transactions.

106. The Lossco PS will be Term Preferred Shares and Taxable Preferred Shares.

107. Each of the Lossco PS Dividends, which are generally described in Paragraph 43(d) and specifically described in Paragraphs 82, 84, 86, 88 and 90 will qualify as an Excluded Dividend and an Excepted Dividend.

108. At all relevant times in the course of the Proposed Transactions, Profitco will be a Specified Financial Institution because it will be related to various corporations each of which is described in paragraph (g) of the definition of Specified Financial Institution.

However, Profitco will not acquire the Lossco PS, which are generally described in Paragraph 43, and specifically described in Paragraphs 53, 55, 57, 59, 63, 67, 69, 73 and 77, in the ordinary course of its business.

109. At no time during the implementation of the Loss Consolidation will any of the Lossco PS be:

(a) the subject of a Guarantee Agreement;

(b) the subject of a Dividend Rental Arrangement;

(c) the subject of any secured undertaking of the type described in paragraph 112(2.4)(a); or

(d) issued for consideration that is or includes:

(i) an obligation of the type described in subparagraph 112(2.4)(b)(i), other than an obligation of a corporation that is related (if the Act were read without reference to paragraph 251(5)(b)); or

(ii) any right of the type described in subparagraph 112(2.4)(b)(ii).

110. The terms of the IBLs, which are generally described in Paragraph 47, and specifically described in Paragraphs 52, 54, 56, 58, 62, 66, 68, 72 and 76, including the interest rate bearing on each such IBLs reflect the terms and a commercial interest rate that are applicable to Arm’s Length transactions.

111. In the course of the maintenance of the Loss Consolidation and the Wind-Up:

(a) Each of the Losscos will satisfy the relevant solvency test required under the applicable corporate legislation prior to paying the Lossco PS Dividends to Profitco, which are generally described in Paragraph 43(d) and specifically described in Paragraphs 82, 84, 86, 88 and 90; and

(b) Each of the Losscos will satisfy the relevant solvency required under the applicable corporate legislation prior to redeeming the Lossco PS, which are generally described in Paragraph 43, and specifically described in Paragraphs 53, 55, 57, 59, 63, 67, 69, 73 and 77.

112. The Lossco PS Dividends, which are generally described in Paragraph 43(d) and specifically described in Paragraphs 82, 84, 86, 88 and 90, will have no other purposes other than the one described under the heading “Purposes of the Proposed Transactions”.

Pertaining to Lossco and the Profitcos

113. Profitco files its income tax returns with the XXXXXXXXXX.

114. Lossco1 files its income tax returns with the XXXXXXXXXX.

115. Lossco2 files its income tax returns with the XXXXXXXXXX.

116. Lossco3 files its income tax returns with the XXXXXXXXXX.

117. Lossco4 files its income tax returns with the XXXXXXXXXX.

118. Lossco5 files its income tax returns with the XXXXXXXXXX.

Purpose of the proposed transactions

119. The sole purpose of the Proposed Transactions is to consolidate Taxable Income and Non-Capital Losses within a group of Affiliated Persons by causing each of the Losscos to earn interest income on the Profitco Notes so that the Losscos can use all of their Non-Capital Losses, and having Profitco to incur, in aggregate, a corresponding interest expense in respect of the Profitco Notes that will reduce its income and Taxable Income before the Wind-Up.

120. The purpose of the payment and the receipt of the Lossco PS Dividends, which are generally described in Paragraph 43(d) and specifically described in Paragraphs 82, 84, 86, 88 and 90 is to provide a reasonable return on the Lossco PS. More specifically, none of the purposes of the Lossco PS Dividends is to effect:

(a) a significant reduction in:

(i) the portion of the capital gain that, but for the Lossco PS Dividends, would have been realized on a disposition of shares of the capital stock of any of the Losscos, or

(ii) the Fair Market Value of the Lossco PS, or

(b) a significant increase in the cost of any property.

121. The Proposed Transactions are not being undertaken to refresh Non-Capital Losses or facilitate the use of such Non-Capital Losses in a taxation year that ends after the taxation year in which the Non-Capital Losses would have otherwise expired in the hands of the Losscos.

122. The purpose of the Loss Consolidation is not to shift income to a lower rate province. Any shift of income between provinces would be incidental to the Proposed Transactions.

Rulings:

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, Proposed Transactions, additional information and the Purposes of the Proposed Transactions, the Proposed Transactions are completed in the manner described above, and there are no other transactions which may be relevant to the Rulings requested, we rule that:

A. Provided that Profitco has a legal obligation to pay interest on the IBLs respectively referred in Paragraphs 52, 54, 56, 58, 62, 66, 68, 72 and 76 and that Profitco continues to hold the Lossco PS respectively referred in Paragraphs 53, 55, 57, 59, 63, 67, 69, 73 and 77 for the purpose of gaining or producing income, Profitco will, pursuant to paragraph 20(1)(c), be entitled to deduct in computing its income for a taxation year, the lesser of: (i) the interest paid or payable (depending on the method regularly followed by Profitco in computing its income for purposes of the Act) on the IBLs in respect of that taxation year, and (ii) a reasonable amount in respect thereof.

B. The provisions of subsections 15(1), 56(2) and 246(1) will not apply to the Proposed Transactions, in and by themselves.

C. The Lossco PS Dividends that Profitco will receive on the Lossco PS, which are described in Paragraphs 53, 55, 57, 59, 63, 67, 69, 73 and 77, will be Taxable Dividends and such Lossco PS Dividends will, pursuant to subsection 112(1), be deductible in computing the Taxable Income of Profitco for the taxation year in which the Lossco PS Dividends are received by Profitco. For greater certainty, such deduction will not be precluded by any of subsections 112(2.1), 112(2.2), 112(2.3) or 112(2.4).

D. Part IV.1 and VI.1 will not apply to the Lossco PS Dividends described in Ruling C.

E. Provided that the payment and receipt of the Lossco PS Dividends, which are described in Paragraphs 82, 84, 86, 88 and 90 have no purpose other than the ones described in the “Purpose of the Proposed Transactions”, and the Proposed Transactions are undertaken in the manner described above, the provisions of subsection 55(2) will not apply in respect of the Lossco PS Dividends referred in Ruling C that are received by Profitco on the Lossco PS.

F. The provisions of subsection 80(1) will not apply to the settlement of each of the Profitco Notes and the Redemption Notes as described in Paragraphs 93, 95, 97, 99 and 101. No gain or loss will be realized either as a result of the settlement of each of the Profitco Notes and the Redemption Notes as described in Paragraphs 93, 95, 97, 99 and 101.

G. Subsection 245(2) will not be applied as a result of entering into the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed in the Rulings given.

H. The general anti-avoidance provision of an Agreeing Province will not be applied, as a result of the Proposed Transactions to redetermine the tax consequences confirmed in the rulings above, in respect of a taxation year in respect of which such Tax Collection Agreement is in effect.

I. Provided that Profitco and each of the Losscos file with the CRA a joint election in writing in prescribed manner that includes all the information described in paragraph (e) of the Excluded Interest definition in subsection 18.2(1), the interest payable by Profitco to each of the Losscos on the IBLs will be Excluded Interest.

The above Rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R12 dated April 1, 2022, and are binding on the CRA provided that the Proposed Transactions described in Paragraphs 43 to 79 above are commenced and entered into on or before XXXXXXXXXX, and the remaining Proposed Transactions described in Paragraphs 80 to 101 are undertaken as described in this letter.

The above Rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted, could have an effect on the Rulings provided herein.

Other comments:

Nothing in this letter should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:

(a) the Fair Market Value or ACB of any property or the PUC of any share referred to herein;

(b) the amount of any Non-Capital Loss;

(c) the character of the Profitco Notes and the Redemption Notes;

(d) the provincial income tax implications relating to the allocation of income and expenses under the Proposed Transaction;

(e) the application or non-application of the general anti-avoidance provision of the province of XXXXXXXXXX; and

(f) any tax consequences relating to the Facts and Proposed Transactions described herein other than those specifically described in the Rulings given above.

An invoice for our fees in connection with the rulings request will be forwarded to you under separate cover.

Yours Truly,

XXXXXXXXXX
For Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch